TREASURIES-US bonds dip as strong data reinforces steady Fed rate outlook

* ISM manufacturing PMI index hits highest since August 2022

* US private payrolls rise in March

* US rate futures shift from pricing hikes to modest easing

* Trump says US will end war in Iran

* Markets await Trump's remarks Wednesday evening (Adds new comment, updates yields)

By Gertrude Chavez-Dreyfuss

NEW YORK, April 1 (Reuters) - U.S. Treasuries slipped on Wednesday as the second quarter got underway, snapping a multi-day rally, after a fresh batch of data pointed to continued resilience in the U.S. economy, bolstering expectations that the Federal Reserve will hold interest rates steady this year and not cut them.

In afternoon trading, U.S. 10-year yields, which rise when Treasury prices fall, were last slightly up on the day at 4.313% . They advanced by 37 bps in March, their largest monthly increase since December 2024.

On the front end of the curve, the two-year yield, which reflects interest rate expectations, was flat at 3.795% . The yield climbed 43 bps last month, its biggest monthly rise since October 2024.

U.S. private payrolls for March and retail sales for February came in higher than expected, providing Treasury yields a lift. A U.S. manufacturing report showing that a measure of prices paid by factories for inputs surged to its highest in nearly four years also provided a boost to yields.

"In the near or intermediate term, the Fed will be more than likely on hold, trying to assess any type of fallout from the war, from inflation, from the economy," said Kevin Flanagan, head of fixed income strategy at WisdomTree.

He added that if the war is over by the time new Fed Chair Kevin Warsh comes in the summer, hopefully the market goes back to looking at more of the traditional forces that influence monetary policy.

Investors also sold safe-haven Treasuries as risk appetite improved after President Donald Trump told Reuters on Wednesday the U.S. will end its war against Iran fairly soon and could return for "spot hits" if needed. He is scheduled to address the nation at 9 p.m. EDT on Wednesday (0100 GMT on Thursday).

Stocks rallied after the Trump comments, while U.S. crude futures slid 1.7% to just below $100 per barrel.

"The market feels that we are closer to the end of the war," Flanagan said. "If that's the case, then we may have seen the peak in energy prices and that will remove some of the outsized inflationary fears that the market has embraced recently."

DETAILS OF ECONOMIC DATA NOT SO STRONG

Wednesday's data showed private employment rose by 62,000 jobs in March, according to the ADP's national employment report, underscoring steady labor market gains after an upwardly revised increase of 66,000 in February. A Reuters poll of economists had forecast a gain of 40,000 jobs.

U.S. retail sales also showed renewed strength in February, lifted by a rebound in vehicle purchases. Sales climbed 0.6% after a revised 0.1% slip in January, exceeding expectations for a 0.5% rise. Retail sales, which largely track goods purchases and are not adjusted for inflation, had previously been reported to have fallen 0.2% in January.

"Before anyone uncorks the champagne, the (ADP) report was bereft of breadth - 90% of the sectors basically flatlined, and two-thirds of the regions actually posted outright job loss last month," said David Rosenberg, an economist and the founder of Rosenberg Research.

He also noted that taking into account real retail sales data, which is adjusted for inflation, the "build in" for the first quarter is actually "running negative around 1%."

"When real sales are running negative in a given quarter, it is tough to build a view that Treasury yields won't go down ... we still believe they will," Rosenberg said.

Treasury yields further pushed higher after new data signaled renewed strength in U.S. manufacturing. The Institute for Supply Management said its manufacturing PMI rose to 52.7 last month, the strongest reading since August 2022, from 52.4 in February.

Price pressures also intensified. The survey's prices-paid index jumped to 78.3, the highest reading since June 2022, from 70.5 in February, as supply chain disruptions triggered by the Middle East conflict drove input costs higher.

In other maturities, U.S. 30-year yields were marginally up at 4.897%. In March, 30-year yields rose 27 bps, marking their best monthly advance since December 2024.

The yield curve flattened a touch on Wednesday, with the gap between two-year and 10-year yields narrowing to 51.8 bps , compared with 52 bps late on Tuesday.

The curve has bull-steepened over the last three sessions, a pattern in which yields on short-dated notes were falling faster than those on longer-term maturities. That trend reflects a view that rate cuts are back on the horizon for 2026.

U.S. rate futures on Wednesday priced in about 7 bps of easing, a turnaround from the 10 bps of hikes reflected earlier this week, according to LSEG estimates. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Andrew Heavens, Paul Simao and Aurora Ellis)